The downside of diversity
Jan 21st 2014, 16:00 by our Schumpeter columnist

THE closest thing the business world has to a universally acknowledged truth is that diversity is a good thing: the more companies hire people from different backgrounds the more competitive they will become. Diversity helps companies to overcome talent shortages by enlarging their talent pools. It helps them to cope with globalisation by expanding their cultural horizon. It stimulates innovation by bringing together different sorts of people. And so on. 

Diversity has multiple meanings which get conflated.

- The first type of "diversity" is in settings where sheer talent matters most and the talent comes from all over the world. For example, the richest baseball team, the New York Yankees, has players from all over the world. For example, they just signed the best Japanese pitcher to a $22 million per year contract. Hiring people who don't speak a common language doesn't do much for clubhouse morale, but that's probably overrated versus sheer individual skill in winning baseball games. The glamor of the diversity of the Yankees then sheds itself onto other, quite different uses of the term.
- The second use of the terms "diversity" means to hire the less talented and less productive. For example, the Yankees very rarely hire Asian Indians or even Mexicans. And they sure don't let any women on their team. But nobody notices and nobody cares. But if you mentioned the fact that women and, surprisingly, Mexicans aren't really good enough to play much for the Yankees, people would get mad at you.
- The third use is to refer to certain favored groups and to not refer to certain unfavored groups. For example, hiring a white NFL cornerback would, technically, increase diversity at that position, but nobody cares. Whites simply don't count as diversity, even when they should.
- The fourth use is to assume that diversity means that 1+1+1=4. If, say, the Yankees have some players who speak English, some who speak Spanish, and some who speak Japanese, they will play better as a team than if, all else being equal, they all spoke one language. Why? Due to the synergistical magic of diversity. This is the theme of many of the corporate image ads you see during the Olympics and golf tournaments.

But what about the downside of diversity? It does not pay to ask this question. Many countries have equal-opportunity laws on their books. American universities (and many others as well) are institutionally committed to the idea that diversity promotes learning and creativity. Most important perhaps, nobody wants to come across as unsympathetic to minorities or unappreciative of cultural variety. 

Yet a glance beyond the corporate-diversity statements suggests a more complicated picture. It is notable how many of the world’s best companies, such as McKinsey and Apple, have cult-like cultures—probably because they are also very diverse: they need a strong culture. It is also notable how many of the world’s best companies are rooted in small towns: think of Lego (Billund) or Walmart (Bentonville).

Maybe I'm exaggerating, but it struck me in 1991-92 that Walmart was a vehicle for previously underachieving Scots-Irish hillbilly types to come out of nowhere and take over, like one of Ibn Khaldun's high asibya tribes coming out of the Sahara to conquer the diverse rich cities of the coast.

Distinctive religious groups such as the Mormons in America and the Parsis in India have also made an outsized contribution to corporate life. 

It is far too easy to present “diversity” in one-sided terms: as a triumph of enlightenment over bigotry and creativity over closed-mindedness. But the subject is too important to be left to the cliché-mongers. Diversity can bring risks as well as benefits and perils as well as perks. There are trade-offs to be made, for example between the trust that comes from sharing a common background and the cultural sensitivity that comes from employing people from different parts of the word. 

Roy Y.J .Chua, of Harvard Business School, is one of the few academics to produce serious studies of this subject. Mr Chua agrees that in a world of multinational corporations and global product markets success depends more than ever on your ability to foster multicultural thinking and cross-border collaboration. But in a paper in the current issue of the Academy of Management Journal (“The Costs of Ambient Cultural Disharmony: Indirect Intercultural Conflict in Social Environment Undermine Creativity") he goes on to note that getting people from different nationalities and cultural backgrounds to co-operate is fraught with difficulties. At best differences in world-view and cultural styles can produce “intercultural anxiety”, at worst outright conflict. The very thing that can produce added creativity—the collision of different cultures—can also produce friction. The question is whether the creativity is worth the conflict. 

Mr Chua argues that creativity in multicultural settings is highly vulnerable to what he calls “ambient cultural disharmony”. Tension between people over matters of culture, he says, can pollute the wider environment and reduce “multicultural creativity”, meaning people’s ability to see non-obvious connections between ideas from different cultures. “Ambient cultural disharmony” persuades people to give up on making such connections because they conclude that it is not worth the trouble. 

Mr Chua also says that “ambient cultural disharmony” has its strongest impact on people who regard themselves as open-minded. Closed-minded people expect cultural tensions. Open-minded people don’t expect them and so react to them more strongly. ...

In all three studies, subjects who had a greater experience of ambient cultural disharmony fell short on one or another of Mr Chua’s measures of creativity. Mr Chua says that he is not certain how much of a problem this is because his is the first study to identify it. But his results are important partly because many companies have such an optimistic view of cross-cultural pollination and partly because the second-order effects of cultural conflict (particularly among people who regard themselves as open-minded) are so hard to manage.

When I was in the marketing research business, the firm I worked at bought a Waltham, MA firm founded by MIT professors. A young Lebanese executive from the firm soon moved to headquarters in Chicago and rocketed up the ranks because he was unbelievably smart. (Papers were piled six inches deep all over his desk in a seemingly random fashion, but he would instantly retrieve any paper needed because he simply remembered in 3-d fashion where each one was.) The only problem with this Lebanese executive was that he was extremely brusque. Fortunately, I recalled that I had known five Lebanese people previously, and they were all brusque. By Levantine standards of politeness, this new fellow was David Niven reincarnated. So, I got along fine with him because I judged him on the Levantine curve. 

But if you are "open-minded" (which these days means "empty-headed") and rejected on principle my kind of ethnic stereotyping, you'd be as personally annoyed by his behavior as many of our less ethnorealist colleagues were.